Research Report Update

Addex Refocuses Efforts On Orphan Diseases

On February 7, 2013, Addex Therapeutics (OTC Markets:ADDXF) announced it would focus its resources on developing its clinical stage pipeline for rare diseases. This is in contrast to the previous focus of the company, which included developing clinical candidates for large indications like schizophrenia, depression, anxiety, diabetes, rheumatoid arthritis, psoriasis, Alzheimer’s and Parkinson’s disease. Addex also had significant pre-clinical discovery with mechanisms targeting mGluR2 PAM, mGluR2 NAM, mGluR4 PAM, mGluR7 NAM, GLP1R PAM, TrkB PAM, and TNFR1 NAM. The new strategy includes narrowing the focus on the company to molecules where management believes orphan drug status (ODS) can be obtained, thus reducing both the time and cost to develop the drugs while guaranteeing market exclusivity and potentially attracting partners. We note that nearly half (19) of the 39 drugs approved in 2012 had orphan drug designations.

…Dipraglurant…

Specifically, management will refocus its efforts on dipraglurant to rare forms of dystonias. Management continues to be in discussion with potential partners on dipraglurant for Parkinson’s disease – levodopa induced dyskinesia (PD-LID). We remind investors that Addex presented positive data from a phase 2a PD-LID trial in March 2012. We encourage investors to view our previous work on this data from August 2012. However, Addex believes it can create value around dipraglurant by refocusing the company’s internal efforts on potential orphan indications and dystonia by pushing forward development of the drug into a phase 2a study in the next few months.

The specific indication has yet to be noted, but on the company’s conference call on February 7, 2013, Chief Medical Officer, Charlotte Keywood, mentioned writer’s cramp, which is a focal dystonia of the fingers, hand, and/or forearm. Patients with writer’s cramp typically try anticholinergic drugs such as trihexyphenidyl or benztropine. Others may progress to botulinum neurotoxin (Botox) injections. Still, as many as half of these patients are inadequately treated, and a molecule like dipraglurant may be a viable new option.

Ultimately we believe Addex will seek to reformulate dipraglurant into an extended release formulation for dystonia. However, the phase 2a study the company seeks to initiate in the next few months will be with the same immediate release formulation that was successful in PD-LID. This makes it easy for management to push forward with confidence in the known pharmacokinetics and dose-response. Reformulation can be completed concurrent while this proof-of-concept work is done in phase 2a. We would expect that data from this study will be available in early 2014. By that time, the formulation work on the extended release version should be complete and the company can move into a larger-scale phase 2b in 2014 for dystonia.

We also expect that Addex will file for orphan drug status (ODS) on dipraglurant for this rate type of dystonia. This provides reduced cost to develop in the indication and potentially a quicker path to approval. ODS also guarantees market exclusivity and potentially helps attract partners for commercialization. We believe management will be in position to file the orphan drug application later in 2013.

…ADX71441…

Addex also expects to push forward into clinical studies with ADX71441, a potent, selective, orally available small molecule that is brain penetrant and shows good pharmacokinetic properties for once-daily dosing. ADX71441 is a gamma-aminobutyric acid subtype B (GABA-B) receptor positive allosteric modulator (PAM). This pathway has been clinically and commercially validated by generic GABA-B receptor agonist, baclofen, currently used primarily for spasticity and spinal cord injuries. Orthosteric GABA-B receptor agonists have also shown clinical validation in gastroesophageal reflux disease (GERD) as well.

Management plans to begin a phase 1 study with a focus on Charcot-Marie-Tooth disease, or CMT1A. CMT1A is a rare hereditary motor and sensory neuropathy that causes demyelination of the peripheral nerves with a consequence of severely and uniformly reduced nerve conduction velocities and consecutive axonal loss. CMT1A patients typically see damage or destruction to the myelin sheath covering around nerve fibers in the legs first, but symptoms can move to the arms and hands, and often becomes highly debilitating with progressive neurological pain and muscle atrophy on disease progression. CMT1A can result in sensory system dysfunction and loss of vibration and joint position sense.

Onset of the disease is between age 5 and 25 years, with a prevalence of 1 in 5,000. Charcot-Marie-Tooth is one of the most common inherited nerve-related disorders passed down through families in an autosomal dominant fashion. Duplication of a chromosome 17 fragment harboring PMP22 represents 43% of the total CMT cases. PMP22 is an essential component of myelin expressed in all myelinated fibers. PMP22 is necessary for stabilizing compact myelin in the body.

There are no known cures for CMT1A. Addex has studied the mechanism of ADX71441 in transgenic CMT rats with data showing reduced hypo-myelinated axons and increased compound muscle action potentials in peripheral nerves when compared to a control. ADX71441 also prevented grip strength loss in CMT rats compared to wild type rats. The goal here for Addex is to move into a phase 1a single-dose study in the next few months and then a phase 1b multi-dose study around the middle of the year. Management will be looking for biomarker data from these studies in late 2013. If all goes well, Addex could be in position to begin phase 2a studies with ADX71441 in 2014. We remind investors that in January 2013, the company secured a composition of matter patent (U.S. Patent # 8,344,138) covering ADX71441 and other GABA-B receptor (GABA-BR) positive allosteric modulators (PAM).

…mGluR4 PAM…

The third molecule that Addex plans to focus on is an oral mGluR4 PAM currently in pre-IND studies for the treatment of multiple sclerosis and Parkinson’s disease. Management is particularly excited about this agent given the non-dopaminergic mechanism of action and potential disease-modifying efficacy. Specifically, mGluR4 is highly expressed within the basal ganglia in key areas for motor control and movement. Activation of mGluR4 may restore balance by decreasing GABA and Glutamate neurotransmitter tone.

The mechanism for mGluR4 PAM has demonstrated improvement in motor function and neuroprotection in preclinical models. In September 2012, Addex reported positive proof of concept for its lead mGluR4 PAM compound in a validated rodent model for multiple sclerosis (MS). Addex is currently in the candidate selection stage and expects to be in position to begin IND-enabling studies in 2014. We expect management to provide an update on the specifics of selection and timing for an IND filing later in 2013.

We remind investors that in October 2012, Addex announced that it has been awarded a CHF 0.7 million grant from the Swiss Commission for Technology and Innovation (CTI) to develop allosteric modulator therapeutics for neurodegenerative and psychiatric diseases. Addex will collaborate with the Center for Psychiatric Neuroscience at the University of Lausanne and at the Laboratory for the Study of Neurodegenerative Diseases (LEN) at Ecole Polytechnique Fédérale de Lausanne (EPFL). The objective of the project is the characterization and optimization of potent and selective allosteric modulators targeting Group III of metabotropic glutamate receptors, one mechanism of which was mGluR4 PAM.

U.S. LISTING

Addex Therapeutics has also made the decision to pursue a listing on a major U.S. exchange, most likely the NASDAQ market through the offering of American depository receipts (ADRs). We note that U.S. shareholders (as of the last annual report) now account for roughly 40% of current shareholder base, with home-country Switzerland in second with roughly 23%. Addex shares currently only trade on the OTC market under ADDXF, creating liquidity and compliance issues for major U.S. institutional buyers. We think listing on a U.S. exchange is a wise move.

From a financial standpoint, we believe Addex has the necessary cash to fund operations into 2014. The company exited 2012 with roughly CHF 15.3 million on the books thanks to a CHF 10 million raise in October 2012.. Burn in 2012 was CHF 20.8 million, but we think this new refocusing of clinical efforts on dipraglurant and ADX71441 to niche orphan indications and limiting the preclinical discovery engine should help to reduce burn dramatically in 2013 and make the company more attractive to investors. We expect the company to secure sizable financing later in 2013 upon the listing on the ADRs to the NASDAQ or NYSE-MKT. This could provide funding well into 2015 or beyond.

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